Macro Holds, Technicals Bite: Pricing the For-Longer Regime

The fundamental macro backdrop received further validation this week with September flash PMIs stronger than expected across economies and sectors. The US remains the clearest outperformer, with the composite PMI at 58.4 consistent with 4% annualized GDP growth in 3Q, upside risk to our 3.5% forecast, while the DM composite PMI rose to 55.7, its highest since 2021. Stronger growth, coupled with energy price pressures, pushed terminal-rate pricing higher across DM central banks, with the Norges Bank joining the hiking club. What stands out is the shape of the repricing: rather than a flatter money-market curve, the recent move was accompanied by a steeper curve, with the bulk of the moves in the 1Yx1Y and 2Yx1Y buckets. This may reflect expectations of rates staying "higher-for-longer" but may also reflect liquidation of intermediate-term received positions from investors fading the durability of the hiking cycle, so investors should be cautious in reading firm medium-term policy expect